Correlation Between Nextdoor Holdings and Yelp

Can any of the company-specific risk be diversified away by investing in both Nextdoor Holdings and Yelp at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Nextdoor Holdings and Yelp into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Nextdoor Holdings and Yelp Inc, you can compare the effects of market volatilities on Nextdoor Holdings and Yelp and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Nextdoor Holdings with a short position of Yelp. Check out your portfolio center. Please also check ongoing floating volatility patterns of Nextdoor Holdings and Yelp.

Diversification Opportunities for Nextdoor Holdings and Yelp

0.35

Correlation Coefficient

Nextdoor Holdings  Yelp

Weak diversification

The 3 months correlation between Nextdoor and Yelp is 0.35. Overlapping area represents the amount of risk that can be diversified away by holding Nextdoor Holdings and Yelp Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Yelp Inc and Nextdoor Holdings is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Nextdoor Holdings are associated (or correlated) with Yelp. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Yelp Inc has no effect on the direction of Nextdoor Holdings i.e., Nextdoor Holdings and Yelp go up and down completely randomly.

Pair Corralation between Nextdoor Holdings and Yelp

Given the investment horizon of 90 days Nextdoor Holdings is expected to generate 1.99 times more return on investment than Yelp. However, Nextdoor Holdings is 1.99 times more volatile than Yelp Inc. It trades about 0.03 of its potential returns per unit of risk. Yelp Inc is currently generating about 0.0 per unit of risk. If you would invest  215.00  in Nextdoor Holdings on September 20, 2024 and sell it today you would earn a total of  13.00  from holding Nextdoor Holdings or generate 6.05% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Nextdoor Holdings  vs.  Yelp Inc

Nextdoor Holdings

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Nextdoor Holdings has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound basic indicators, Nextdoor Holdings is not utilizing all of its potentials. The latest stock price tumult, may contribute to shorter-term losses for the shareholders.

Yelp Inc

Risk-Adjusted Performance

12 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Yelp Inc are ranked lower than 12 (%) of all global equities and portfolios over the last 90 days. Even with relatively uncertain essential indicators, Yelp reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Nextdoor Holdings and Yelp

The main advantage of trading using opposite Nextdoor Holdings and Yelp positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Nextdoor Holdings position performs unexpectedly, Yelp can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Yelp will offset losses from the drop in Yelp's long position.

The idea behind Nextdoor Holdings and Yelp Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Ceiling Movement module to calculate and plot Price Ceiling Movement for different equity instruments.